At a recent conference on impact investment, I got talking to someone from a well-known funder. The conversation soon turned to whether it had used the services of impact investment intermediaries. He said it had and wanted to do it more, but that intermediaries were "incredibly greedy". In the past, the funder had been charged up to £1,000 a day – a sum he considered indecent.
My company is an impact investment intermediary, so I need not bother to declare an interest - and I saw his point. It is challenging to justify payments of this magnitude in a world where so many people are living on less than $2 a day.
A figure of £1,000 a day seems an eye-popping amount to charge - how many people really deserve £200,000 a year? And if they do, should they be in this sector? But let's look a bit deeper.
Nobody is "billable" 100 per cent of their working day. If we assume that a professional does client work 60 to 70 per cent of their time, then expected annual revenues amount to about £130,000 a year. Behind each professional is a team that carries out HR, administration, finance, legal and so on, but whom you don't bill for their time. In addition, there are sales teams that generate costs and do not win every pitch – and that, even if successful, cannot bill that time to the client. Nearly half the fee is eaten up this way.
This leaves £65,000, which means you can pay about £50,000 in salary after deducting about 30 per cent for national insurance, pensions, training and other staff benefits. This leaves no surplus, which the organisation requires to be sustainable and invest for growth.
To become sustainable, the intermediary must charge more, become more efficient or pay less. Now £50,000 a year seems like a decent wage and is nearly twice the national average; unfortunately, most intermediaries are based in London, where costs are higher than in the rest of the UK. Furthermore, financial transactions in the impact space are no less complicated than in the mainstream. The skills required demand people with significant financial acumen, whose market value is many multiples of the figures above.
When I explained this to the funder, he was not impressed. He accepted the maths, but he still felt the figures were too high.
I asked him what his outfit paid its lawyers a day, "That's different," he said. "What about your accountants?" I asked.
He argued that too was different.
Admittedly, intermediaries need to articulate and demonstrate better the value they add, and the maths above should be explained to funders, investors and entrepreneurs. Alternatively, these three groups should explain to intermediaries why their skills are worth significantly less than those of lawyers and accountants in the impact domain.
It would be indecent for impact intermediaries to earn the packages commonly found in the City of London, but this is far from the case today. If we want the sector to work, we have to talk about, and then tackle, this challenging issue.
Rodney Schwartz is chief executive of ClearlySo, which helps social entrepreneurs raise capital